U.S. Travelers Are Benefiting From The Lowest Domestic Airfares In At Least 9 Years – Dan Reed
With only one month left in 2018 it now appears almost certain that the average inflation-adjusted domestic round-trip air fare in America this year will be the lowest it has been in at least nine years.
Based on data and analysis from the U.S. Department of Transportation and Airlines for America, the major carriers’ trade association, the average domestic round-trip fare paid during the first of 2018 was $338, excluding ancillary fees, and $360 including those fees.
That’s 15.1% lower than the $398 that travelers paid, on average, in 2014 excluding ancillary fees, and 14.9% lower than the $423 they paid, on average in that same year when fees for ancillary services are included. The year 2014 turned out to be the costliest, on average, for domestic air travel year out of the last nine years.
Average U.S. domestic round-trip airfares since 2010Airlines for America/ U.S. DOT
The cheapest year for domestic air travel, on average, out of the previous eight years was 2017, when the average domestic round-trip fare, excluding ancillary fees was $347, and $370 with those fees. Those figures were both about 3% higher than the average domestic round-trip fare in the first half of this year.
All dollar figures in the data and analysis are inflation adjusted and stated in 2018 constant dollars.
The final calculation of the average domestic round-trip fare price for all of 2018 won’t be available until sometime next spring. But it is very unlikely – in fact, it’s almost statistically impossible – for the full-year 2018 average fare price to rise above the 2017 full-year average price. That’s the case for several reasons.
First, to push that much higher from the first half 2018 average fare price, second half 2018 fares prices would have to have been significantly, even painfully higher throughout the second half of this year. But that has not been the case.
Only this week has Southwest been able to push through a modest fare hike that other carriers followed. Southwest is a long-established discount carrier that now struggles with higher costs than traditionally was the case. Still, it tends to set the floor price for fares charged by the nation’s largest, more conventional airlines. Southwest raised its prices $2 to $5 each way on about 90,000 listed fares. American, Delta, United, Alaska, JetBlue and Hawaiian airlines all followed suit.
That increase was welcomed by analysts and investors who had been complaining for months that airlines’ fares were too low this year because the industry had added more capacity than consumer demand could fill without airlines resorting to increased price discounting. But even that new, modest price increase isn’t big enough, nor will it be in effect long enough for it to significantly alter 2018’s downward pricing trend line.
Airline profits in 2018 also are expected to be down from 2017 and from the peak year of 2015, when the group as a whole earned an unprecedented $23.7 billion net profit and an operating profit of $26.8 billion. Last year U.S. airlines reported combined operating profits of $20.3 billion and combined net profits of $14 billion.
Through the first nine months of this year, U.S. airlines saw fuel prices move up 50% from the previous year, only to fall precipitously again over the last six weeks.
The fact that U.S. air travelers are getting a relatively good deal on the average domestic fare prices paid this year does not mean that every passenger is scoring a great deal.
The calculation of the average fare price includes a large number of factors that impact the percentage of seats sold at various prices. Business travelers and leisure travelers willing to spend extra for comfort frequently end up paying twice or three times more than the price of the average fare. Conversely, those willing to forego “extras” or even service features that used to be considered basic (like the ability to choose a seat or carry on a bag for free) frequently pay half, or even only a third of the “average” fare price.
Then there are business travelers who pay somewhat lower fares for full service treatment because the big corporations for which they work negotiate substantial net discounts based on the high volume of business travelers they place a particular carriers’ flights. Then there are those who travel for free, or virtually free, by using mileage points earned as members of carriers’ frequent flier programs.
Price-sensitive travelers tend to make up a much greater share of passengers on board any given flight. But the wide gap in prices paid by the most and the least price-sensitive travelers can push the average price up even though relatively few travelers pay those higher fares.
Not surprisingly, data from A4A, the carriers’ trade association, illuminates the effect that different carriers’ marketing approaches can have on the average prices paid by their passengers.
U.S. Carriers’ Average Domestic Round-trip Fares* – 1st Half 2018
Carrier Fare Market Share
Southwest $261.52 23.3%
American $411.63 19.6%
Delta $413.01 18.8%
United $428.70 14.4%
Alaska $320.78 6.3%
JetBlue $296.36 5.5%
Spirit $ 90.32 4.3%
Frontier $114.71 3.1%
Allegiant $133.65 2.5%
Hawaiian $349.12 1.5%
Sun Country $268.60 0.4%
Southwest, which continues to be a discount carrier though it no longer positions itself as industry’s absolute low price leader, had an average roundtrip domestic fare price, excluding fees and taxes, of $261.52 in the first half of the year.
American, the world’s largest airline, had a first half average fare of $411.63, while No. 2 Delta’s was $413.01 and No. 3 United’s was a relatively whopping $428.70.
But because Southwest, which has a very small international footprint, carries an industry-leading 23.3% of all domestic travelers (to the Big Three’s 19.6%, 18.8% and 14.4%, respectively), its first half average domestic round-trip fare of $261.52 has an out-sized effect on bringing down the industry’s average fare price.
The carrier with the lowest average domestic round-trip fare in the first half of this year was Spirit Airlines, at just $90.32. Thus, though it carries only 4.3% of domestic passenger, Spirit, which features Spartan service and extra fees for virtually any service beyond a seat on the plane also has a strong downward pull on the industry’s average fare. Though slightly pricier – and, in each case, smaller that Spirit – fellow “ultra low cost carrier” Frontier, Allegiant and Sun Country exert similar downward pull on the industry’s average price.